ICBA: Federal Home Loan Bank System Must Be Preserved

Washington, D.C. – October 17, 2011 – (RealEstateRama) — Tim Zimmerman, president and CEO of Standard Bank, Monroeville, Pa., urged Congress today on behalf of the Independent Community Bankers of America (ICBA) to preserve the significant role of the Federal Home Loan Bank (FHLBank) system, which helps our nation’s more than 7,000 community banks continue to serve their communities by providing their local customers with a variety of loans including mortgage, small business and agricultural loans. Many of these local customers would be underserved if it were not for their local community bank.

“The 12 regional FHLBanks are a critical resource to community banks, the vast majority of which are FHLBank members,” Zimmerman said during his testimony before the House Financial Services Subcommittee on Oversight and Investigations. “The FHLBanks help community banks like mine continue to serve the needs of our customers each and every day. They demonstrated their value even more during the recent financial crisis, when they continued to provide advances after other parts of the credit markets shut down. As Congress debates the future of the housing finance system, I urge you to preserve the role of the FHLBanks.”

Zimmerman went on to say that the FHLBanks offer advances in a variety of maturities and customize terms for their members. These advances are made possible by the FHLBanks’ strong credit rating and access to the world credit markets—access that is not practical for a community bank. Community banks use advances to fund mortgages and other types of loans and to manage the substantial interest rate risk associated with holding longer-term, fixed-rate loans in portfolio.

“Many rural bank members of ICBA report that FHLBank advances are absolutely essential for their ability to remain competitive in agricultural and agribusiness lending,” Zimmerman said. “In particular, long-term fixed rate agricultural real estate loans of 10 or more years would be nearly impossible for a community bank without the use of FHLBank advances. These loans cannot be funded with short-term deposits because of the interest rate risk.”

In addition to advances, the FHLBanks offer a range of valued services, including community investment programs and correspondent services. Zimmerman pointed out that programs like the Mortgage Partnership Finance Program, a secondary market option for members, is especially important to community banks, including his.

Zimmerman went on to say that ICBA strongly opposes a current Federal Housing Finance Agency proposal that would re-impose a mortgage lending test on FHLBank members. “The Gramm-Leach-Bliley Act lifted the mortgage asset test for Community Finance Institutions, which is significant for rural lenders that have few residential mortgage lending opportunities but greatly benefit from FHLBank membership,” he said.

In closing his testimony, Zimmerman said that the FHLBanks must be kept distinct from Fannie Mae and Freddie Mac. “ICBA opposes proposals to merge them,” he said. “While community banks have benefitted from the existing FHLBank secondary market programs, the primary business of the FHLBanks must remain advances.”

The Independent Community Bankers of America (ICBA) represents the largest constituency of community banks of all sizes and charter types in the nation, and is dedicated exclusively to representing the interests of the community banking industry.

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